Prospects for Easing US Sanctions on Iran Oil Export

Legal/Contract Advisor
Prospects for Easing US Sanctions on Iran Oil ExportProspects for Easing US Sanctions on Iran Oil Export

Economic sanctions against Iran are indeed comprehensive given the scale and scope of sanctionable activities and the sectors targeted,  plus the number of governments and multinationals adhering to the embargoes. US sanctions affect businesses, investors, manufactures, and brokers besides governments and the multinationals.

Given the energy sector's indispensable significance for the Iranian economy, it remains the target of the unfair sanctions regime. A ban on the import of crude oil and petroleum products from Iran means substantial loss in much-needed foreign revenues.

Over and above the oil embargo is the ban on transport of petroleum products as well as provision of finance and insurance related to these activities. Financial sanctions have impeded the government’s ability to repatriate oil revenues into the country, virtually depriving it of the main source of hard currency earnings.

Crude oil sales have diminished from the 2.5 million barrels per day in 2011 to less than a million barrels a day, which is the limit stipulated by the sanctions.

During the ongoing negotiations between Iran and the world powers (the five permanent members of the UN Security Council and Germany), Tehran has reiterated that conclusion of a comprehensive deal hinges on lifting of all the sanctions related to its nuclear energy program.

While politically considered as a negotiating tool, sanctions are in fact solid legal documents, and the termination, suspension, or waivering of each call for specific conditions. US sanctions came into force either by congressional enactment of law or by executive order by the president. However, not all US sanctions require congressional action to be terminated.

The president can terminate some sanctions provisions under existing authority, without specific additional action from the hard-line pro-Israel Congress. This includes Executive Order 13622 of July 30, 2012 which applies sanctions to firms that the administration determines have purchased crude oil or petroleum products (including petrochemicals) from Iran.

Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA) mandates that the president impose banking sanctions on all foreign financial institutions, including foreign central banks or foreign state-owned or controlled banks, that are found to knowingly conduct or facilitate significant financial transactions for the purchase of Iranian petroleum or petroleum products with either the Central Bank of Iran (CBI) or any US-designated Iranian financial institution.

Foreign central and foreign state-owned or controlled banks are also subject to these sanctions if the transactions are for the sale of petroleum or petroleum products to Iran.

The NDAA provides for an exception from sanctions if that country “significantly reduces” its oil purchases from Iran in every successive six-month period, providing the administration with some discretion as to grant exceptions under the provision.

  Not to Enforce Law

However, it is not clear that the executive branch would be able to make a binding commitment to Iran not to apply sanctions based on the president’s authority to make determinations of sanctionability, Kenneth Katzman, a senior Iran analyst at the US Congressional Research Service said in a report, noting that such a pledge could potentially amount to an expression of "administration intent not to enforce US law."

Suspension of financial sanctions mentioned in Section 1245 of the NDAA is essential in case a comprehensive agreement is reached between the two sides. If President Barack Obama determines that a waiver is "in the national security interest of the United States" and submits a report to Congress that provides a justification for the waiver and describes any concrete cooperation the president has received or expects to receive as a result of the waiver, he may waive the application of the banking sanctions for a period of not more than 120 days. The president may renew a waiver for subsequent 120-day periods - with no stipulated limit.

The report submitted to Congress justifying the waiver should also certify that the country receiving the waivers faced 'exceptional circumstances' that prevented it from significantly reducing oil purchases from Iran.

The same waiver authority is also envisaged for those sanctions imposed by the ‘Iran Threat Reduction and Syria Human Rights Act of 2012,’ which stipulates that Iran oil payments must be held in an account in the country buying Iran’s oil and essentially prevents Iran from repatriating hard currency.

Iran and the six powers are aiming to complete the framework of a nuclear deal by the end of March, and achieve a full agreement by June. The president's authority regarding termination or suspension of sanctions is limited, in contrast with the much broader waiver discretion conferred to the administration.

The waiver authority is applicable for the sanctions on export of Iranian crude, as well as related financial restrictions.  Thus, current and future US presidents could decide not to implement some sanction provisions, were there a decision to do so.